To sell or not to sell - that is the question

New York, NY · Member since 2021 · 12 posts · 1 vote

Hey gang!

I have an apartment building in the northeast. Bought it 5 years ago.

Currently, cashflow is **** - $1,500/month but if I increase rents to the current market (probably a 2 - 3 year process) I can likely cashflow $4,000/month. This accounts for a tax reassessment and refinancing the current mortgage balance (loan is comprised of two 5 year terms).
I have $600,000 in the building (between downpayment, capex, closing costs etc).

I have the opportunity to sell it right now and gross $1M or after taxes $700K (if I can't 1031).

Question: Would you sell or keep this property?

0 Reply

7 views

Most Popular Reply

Taylor L.

Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes

So right now you're making 2.5% on the $700k that you could have access to. If you increase cash flow to $4k/mo, that bumps you up to 6.85% on that $700k. I'm using $700k rather than the million in order to run the calculation net of taxes, assuming you don't do the 1031.

2.5% is not a great return by my book. 6.85% isn't great either, but it's not awful if the property is totally passive. Neither of these calculations includes future appreciation, which would increase the return.

I would sell and look to reinvest in the sunbelt. If you can use the 1031, so much the better!

3 Reply

See this reply in the discussion

7 Replies

Jump to latestLatest

Sort by

Taylor L.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
4y
So right now you're making 2.5% on the $700k that you could have access to. If you increase cash flow to $4k/mo, that bumps you up to 6.85% on that $700k. I'm using $700k rather than the million in order to run the calculation net of taxes, assuming you don't do the 1031.
2.5% is not a great return by my book. 6.85% isn't great either, but it's not awful if the property is totally passive. Neither of these calculations includes future appreciation, which would increase the return.
I would sell and look to reinvest in the sunbelt. If you can use the 1031, so much the better!
3 Reply
Jim Pellerin
Real Estate Consultant · USA · Member since 2014 · 1k+ posts · 751 votes
4y
@Taylor L. How many units?
0 Reply
Joseph Shapiro
OP
New York, NY · Member since 2021 · 12 posts · 1 vote
4y
@Jim Pellerin. Think you meant to ask me; 18.
0 Reply
Ryan Howell
Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
4y
I would look at it similar to @Taylor L., but I'd also consider the location and appreciation potential. If it is in an A+ location that you feel is going to generate substantial appreciation, I'd want to weigh that in my decision making, so I'd look at the total ROI on my investment, assuming what you think the property may be worth in the future. Also, if I understand right you have some balloon payment at some point. I'd weigh what interest rates may be at when it's time to refinance, as that could be a risk to your cash flow. Overall, unless it is a great location to hold long term, I would probably sell.
1 Reply
Joshua JanusBusiness Member
Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
4y
Quote from @Joseph Shapiro:

Hey gang!
I have an apartment building in the northeast. Bought it 5 years ago.

Currently, cashflow is **** - $1,500/month but if I increase rents to the current market (probably a 2 - 3 year process) I can likely cashflow $4,000/month. This accounts for a tax reassessment and refinancing the current mortgage balance (loan is comprised of two 5 year terms).
I have $600,000 in the building (between downpayment, capex, closing costs etc).

I have the opportunity to sell it right now and gross $1M or after taxes $700K (if I can't 1031).

Question: Would you sell or keep this property?

It appears you could sell this, reallocate the funds, and find yourself receiving better returns.
[email protected]614-502-5316 Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)
0 Reply
Joseph Shapiro
OP
New York, NY · Member since 2021 · 12 posts · 1 vote
4y
I appreciate everyone's feedback. It's a solid C building in a working class community close to parks, shopping and such. The market price has doubled, leading to the potential $1M gross profit ($700K after taxes).

Tenants are custodians, police officer, prison officer, cable service repair etc. I bring this up because their income is capped relative to white collar employees, so despite the current capacity to push rents - there's only so much you can "squeeze" out of them to increase cashflow.

The projected $4,000/month in cashflow 2 - 3 years from now accounts for increased rent (2022 rates) and an adjustment to my mortgage rate (I have a 10 year loan comprised of two 5 year loan periods. After the first 5 years - coming this November - it will adjust to 265 bps above the weekly average yield of US Treasuries adjusted to a constant maturity of 5 years).

With $4,000/month in cash flow and $600,000 in investment that equates to an 8% annual return 2 - 3 years from now (assuming rents don't drop). One thing that I think will surely drop across multifamily are sales price. So on one hand will I could increase cashflow, the other hand value of the property will decrease.

I can take the $700K profit, hand it to a syndicator, get a 7% pref or the same $4,000/month in cashflow as an owner/operator. At the same time, retaining my $600,000 in initial investment. I can use this to likewise rollover at a 7% pref or use it to upgrade my house etc..
0 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Joseph Shapiro If you decide to sell it, then a 1031 exchange is the way to go. There are some challenges but there are also ways to mitigate those challenges.
The 1031 Investor5137 Reviews
Website View Page
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.